Money Talk With Slater

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Daily archives "June 22, 2020"

How to Make Money with Penny Stocks (Part II)

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Just because shares of a major business drop under $1 doesn’t make them a penny stock.

Cheap Exchange-Listed Stocks

Technically speaking, stocks listed on traditional exchanges aren’t penny stocks, in spite of how low their price is.

If shares of a major business drop under a dollar, it wouldn’t spontaneously make them a penny stock. Lots of factors could lead to a downturn in share price, even for the shares of a business that is reputable, still sound, and satisfying the standards of the exchange.

As you’d expect, a business that has stock on the exchange provides certain confidence to investors, since they’re not usually viewed as volatile.

The NYSE and NASDAQ oblige a minimum market cap and share price to list, as well as yearly listing fees.

If a stock goes below the point where its capitalization or price per share is too low to satisfy these standards, the market has the option to delist the stock. If this occurs, the stock goes to the OTC market. If you own shares of a delisted company, you still own those shares, but they just won’t be worth as much.

How to Find the Best Penny Stocks

As we mentioned, trading penny stocks is risky. Many of these companies are very risky, leaving traders in a position to lose hugely. Though, you can still make money trading penny stocks if you trade intelligently.

What makes a penny stock a possible money-making stock? There are a couple of characteristics to look for:

A company must make money. A business that loses money will always be a horrible investment, regardless of how low the share price is.

A company needs substantial cash or assets. Strong businesses shouldn’t need to liquidate future viability to appease creditors, because they have enough cash to account for contingencies.

A company has to have a strategy in place. Penny stock companies don’t want to be penny stock companies, so the prosperous ones have a strategy in place to increase the business and get listed (or re-listed) on a major exchange. These objectives must include rebuilding a long-term business and paying back investors.